Did you know that there are over 156,622 realtors in the United States? If you are a new realtor, or you’re simply looking into investing in real estate, you’re in the right place. We have put together this guide to share our top real estate investing tips to help you make smart investments.
Read on to learn more.
1. Have a Plan
When you are looking at investment properties you first have to make some type of plan. This allows you to see the bigger picture as you’re investing. Creating a business plan will also help you focus on the most important goals.
Take the time to make a thorough plan so that you can stay on task and organized. You can add an estimate of cash flows from rentals, the number of units you are looking to invest in, demographics, plans to make upgrades, etc. The key is to add anything that will impact your investment over time.
2. Understand the Market
You also want to make sure you are familiar with the market before you start splurging your money on the first property you lay eyes on. Choose the geographic region you’re looking at investing in and do all the homework you can on that specific area.
Take a look at what the mortgage rates are for the area, along with the unemployment rate, the spending habits of consumers in the area, and any other trends. Having this type of research done will help you predict when trends can change, which will help create potential opportunities.
3. Diversify Investments
Our next tip is to consider making investments in other cities and states, don’t limit yourself to only your backyard. As you expand and invest in other geographical areas you will diversify your investments and help protect your investment portfolio against local market volatility.
Don’t get us wrong, there is a merit to understanding your backyard inside and out and investing in it, but we’re saying don’t limit yourself to just your backyard. Eventually invest in other upcoming areas.
4. Don’t Over-Rehab
Although many of us are familiar with flipping shows on HGTV, you don’t have to overdo it and make your investment look like the next pottery barn store. All of your accents and fixtures do not have to be over your budget to make an impression on a potential buyer or renter.
Going for the fixtures that are not on the super high end of the spectrum is ok, especially when you’re first starting out.
5. Rainy Day Fund
When you are investing in real estate you have to always have money set aside for unexpected expenses in the future. If you have renters, you never know if someone will suddenly break their lease and leave you looking for a new tenant last minute. If you’re flipping the home, you never know how quickly it will sell, so you need to have money set aside for those emergencies.
Usually, a good rule of thumb is to set aside between 40-50% of the gross rent in a separate account for a rainy day.
6. Exit Strategies
Having multiple exit strategies in place will help you when you first start out or if you don’t have a lot of extra capital lying around. Buy properties that have good enough numbers to also be a rental just in case.
This backup will save you in the event that the housing market tanks for sellers, and the investment you bought goes down in value before you sell it. Having the option to rent it out, will help you pay for it, without having to come out of pocket for mortgage.
7. Understand All Costs
You have to understand your costs upfront when you are new to the world of investing. Costs you might need to come out of pocket for include: repairs, updates, or pest infestations. Unless you’re familiar with the real estate world, you might not be aware that it can cost quite a bit of money to fix a cracked foundation, or leaky plumbing pipes.
Also, take insurance, utilities, and closing costs into account when you are budgeting your money.
8. Maintain Contact During Escrow
Once you open escrow, it doesn’t mean that the deal is closed, so you have to make sure you stay in touch at all times with the seller during escrow. Have the escrow company reach out to the seller right away to let them know that they are preparing the paperwork. This communication will make sure that the seller is at ease because it will help provide 3rd party validation.
It is also smart to set up the expectation from the beginning, by letting them know that you will be checking in and touching base throughout the escrow period.
9. Tax Laws
You also want to make sure you’re aware of what the tax laws are in your area. Take the time to speak to an accountant so that you are familiar with the proper forms you will need to file and the paperwork you need to keep track of throughout the year. Sometimes there are new tax codes that allow you to deduct personal property costs or other deductions that you might not be aware of.
Time to Put These Real Estate Investing Tips to Work
Now that you have learned our top real estate investing tips, you can make informed decisions in your own investing strategy. Take your time and never jump in without taking the time to do your homework.
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